The Myth of the Moat
- Joshua M Brown
- December 26th, 2009
It's not that The Moat doesn't matter in stock selection, it's that, like most analytical concepts, it doesn't always matter.
The Moat is a metaphor to describe the protected, fortress-like competitive advantages a company has over other companies; Wal-Mart's moat is its size and scale, Amazon's moat is its user base and checkout simplicity.
Morningstar, a research and data firm that talks about economic moats a great deal, showed us that in 2009, the moat wasn't important at all in terms of performance:
source: Morningstar
In their estimation, once the next Depression scenario was taken off the table, the most injured, no-moat stocks had the most room to run higher. This is a result of their underperformance in 2008 when the moat kept more competitively advantaged stocks in better shape.
Will moats matter in 2010? Guess we'll see.
Sources:
A Banner Year For No-Moat Firms (Morningstar)
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The Reformed Broker is a blog about financial markets and the economy. Joshua Brown is a New York City-based investment advisor for high net worth individuals, charitable foundations, retirement plans and corporations... More. -
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